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I received an email for "System's Testing Workshop" webinar on graybox trading from Andrew Falde and associated with SMB Capital. Graybox trading has been a focus interest of mine for the past couple years. And, over a period of 2 years around 2011, I had 2 top ranked futures system at C2 before taking them offline. SMB Capital is associated with premier training/quality so I was keen to see if they had any quality material on systems development. The cost was $1 for a trial and then $99/month. So, a very reasonable cost. For the $1, you got access to the archive of videos which was nice.

First, the positive, Andrew Falde shows his trading account in several videos and shows that he has a high 6 figure account. He presents clearly and seems genuinely interested in the market and trading and would certainly be someone I'd be happy to build positive relations with in the future.

Now, for the negative, the level of the quantitative work and the quality of the ideas was extremely basic. A great system trader needs to have a quantitative fluency and a quality of working with ideas in fresh and original ways. For example, when I'm actively tracking the market I will generate upwards of 30 to more ideas per day. I didn't see any great ideas, and I only observed minimal quantitative fluency. For example, I have dozens of quantitative toolbox methods that I can use to boost traditional system performance. Of course, many of these ideas are published but not certainly not as well-known among non quantitative traders. I didn't see any of that.

But, it takes some time to develop such methods. But, you might expect to see some really creative and original trading ideas. But, I didn't really see any of that either. There were a few good ideas shared. It almost felt like I didn't have access to the premium content.

As for the ideas regarding gray box trading, it was very basic and didn't address the types of good ideas or the real problems I'd have liked to see addressed. One trader who has been thinking and generating some good ideas has been Shaun Overton from OneStepRemoved (no affiliation). Some of the types of issues you want to address when building a graybox for example are and none of these issues were addressed in the video:

1. How do you think about showing "signals" that might not have enough edge to be taken automatically? One option would be to to try to avoid showing a "signal" that might bias a strong discretionary trader but rather to perhaps color the background to show whether the trader should focus on long versus short trades. These type of ideas weren't even explored.

2. Most systems you find that work tends to be rather selective. A discretionary trader tends to be much more active. If you have a selective trading system then it will be harder for a discretionary trader to improve the results because the profit factor is already high and the system will tend to trade selectively. How do you deal with this problem? Couple ways, you can combine multiple signals to increase the frequency i.e. a diversified approach or you need to approach it in a different way by being able to generate a bias that will provide at least edge in most scenarios or you can try to improve the exit or entry by using secondary logic. These ideas weren't explored. The simplest type of solution is to recognize most markets are mean reverting and add some sort-of pullback entry logic. However, for the discretionary trader is very good at predicting state changes then such an entry method might actually hurt performance. A serious approach would involve various studies of market structure on small time scales under varying regimes.

3. How do you deal with over-fitting, spurious results, and how do you boost the performance using sound quantitative/statistical methods? Not addressed.

4. Thinking about user interfaces... it's an important part of a graybox. You need buttons to interact with a graybox. Not even mentioned.

I didn't really see any of the interesting topics that are important for graybox trading discussed.

Most of the videos consisted of Andrew basically starting off by showing off his account (which was often the highlight and encouraging) and runs a few studies which didn't produce significant results and ending and summarizing that you can take and make it work somehow via your discretionary trading ability. Let me speak a moment about this because the systems shown did not include transaction costs and that's fine to leave that out during the building phase. But, he strongly implied that getting better fills would be the value that a discretionary trader would add. I don't find that notion credible. Where a discretionary trader can add value would be in calling the market direction, determining what levels to trade from, etc. So, a discretionary trader is most likely to be able to add strategic value-- not because they are more likely to execute a trade and get a better fill. Why is strategic value useful? Because a trader who is able predict when to turn on a trend vs mean reversion strategy -- that can boost return because you're applying the proper strategy to the proper market conditions. There are other types of situations where discretionary traders can add value too but getting "good fills" is very unlikely to be one of them. A discretionary trader can recognize when a trade is working and add size. That's another type of advantage. Because these basic concepts weren't even explored, I'm not even sure that anyone watching the video will understand the power and purpose of graybox trading which can be a means of self-improvement through technology with promises far beyond psychology.

Finally, some of the students offer up some really basic ideas such as how would this similar indicator work or not work and then he tests them but he doesn't provide the type of quantitative insight I'd expect nor does he show any sort of rigorous analysis or processes I'd expect from the serious system developer.

In summary, the material is probably useful for someone who doesn't have any experience testing systems but it won't take you very far, at all. Some basic Easylanguage is shown and there are a few interesting bits that you can probably pick up. The commentary among successful traders in some of the videos is entertaining. It's probably worth $1 for the inspiration (even if you cancel you have access for the full 2 weeks) but for better ideas on system development I'd recommend signing up or looking into Jeff's Swanson's System Trader Success, Shaun Overton's work, Ernie Chan, Kevin Davey (some good ideas on Monte Carlo), checking out NAAIM papers, or looking into David Varadi's work. And, trading ideas can be found in the likes of Modern Trader, Active Trader, Trading Pub, or Stocks & Commodities. The Tradestation forums offer great support on Easylanguage and the commercial site Markplex provides tons of basic Easylanguage programming instruction.

Full Disclaimer: I will probably publish on Jeff's System Trader Success blog/newsletter in the future. I also have a Graybox trading website where I plan to offer products/services in the future.